What is the difference between devaluation and depreciation of currency

China trade war , but certainly not the first time China had devalued its currency. While devaluing a currency may be an attractive option, it can have negative consequences. Increasing the price of imports protects domestic industries, but they may become less efficient without the pressure of competition. Higher exports relative to imports can also increase aggregate demand , which can lead to higher gross domestic product GDP and inflation.

Inflation can occur because imports become more expensive. Aggregate demand causes demand-pull inflation, and manufacturers may have less incentive to cut costs because exports are cheaper, increasing the cost of products and services over time. China has been accused of practicing a quiet currency devaluation and attempting to make itself a more dominant force in the trade market. Some accused China of secretly devaluing its currency so it could revalue the currency after the presidential election and appear to be cooperating with the United States.

However, after assuming office, U. President Donald Trump threatened to impose tariffs on cheaper Chinese goods partly in response to the country's position on its currency. Some feared that this may lead to a trade war, putting China in a position to consider more aggressive alternatives if the United States followed through.

Egypt has faced constant pressure from U. The Egyptian stock market responded favorably to devaluation. However, the illegal market responded by depreciating the exchange rate of the U. The Guardian. The New York Times. Your Privacy Rights. To change or withdraw your consent choices for Investopedia.

At any time, you can update your settings through the "EU Privacy" link at the bottom of any page. These choices will be signaled globally to our partners and will not affect browsing data. We and our partners process data to: Actively scan device characteristics for identification. Perhaps we can say, depreciation is steadier or market correlated. Differences between Currency Devaluation and Currency Depreciation — Currency depreciation: When there is a fall in the value of a currency in a floating exchange rate.

The purchasing power of currency is reduced by the government. Devaluation occurs casually. It occurs due to specific reasons for the domestic economy. Depreciation of the currency happens when the country follows a flexible exchange rate. Purchasing power is reduced by the international market. Depreciation takes place under the influence of changes in demand for and supply of a currency.

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Popular Posts. Assertion Reason: Rural Development October 07, Random Posts. Menu Footer Widget. Home About Contact Us. Done By TemplatesYard learnhps. Effect of depreciation on exports: Depreciation encourages exports. Effect of depreciation on imports: Depreciation discourages imports. Effect of appreciation of domestic currency on exports: Appreciation discourages exports.

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